In specifying the overriding objectives of financial reporting, the board considered the economic, legal, political, and social environment in the United States. The objectives would be quite different in a socialist economy where the majority of productive resources are government owned.

Implicit in the objectives is an overall societal goal of serving the public interest by providing evenhanded financial and other information that, together with information from other sources, facilitates efficient functioning of capital markets and otherwise assists in promoting efficient capital allocation of scarce resources in the economy.27

The primary objective of financial reporting is to provide useful information for decision making.

The importance to our economy of providing capital market participants with information was discussed previously, as were the specific cash flow information needs of investors and creditors. SFAC 1 articulates this importance and investor and creditor needs through three basic financial reporting objectives listed in Graphic 1-6.

GRAPHIC 1-6Financial Reporting Objectives

Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence.

Financial reporting should provide information to help present and potential investors and creditors and other users to assess the amounts, timing, and uncertainty of prospective cash receipts.Since investors and creditors cash flows are related to enterprise cash flows, financial reporting should provide information to help assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise.

Financial reporting should provide information about the economic resources of an enterprise; the claims to those resources (obligations); and the effects of transactions, events, and circumstances that cause changes in resources and claims to those resources.These are sources, direct or indirect, of future cash inflows and cash outflows.

SFAC 1 establishes the objectives of financial reporting.

The first objective specifies a focus on investors and creditors. In addition to the importance of investors and creditors as key users, information to meet their needs is likely to have general utility to other groups of external users who are interested in essentially the same financial aspects of a business as are investors and creditors.

The second objective refers to the specific cash flow information needs of investors and creditors. The third objective emphasizes the need for information about economic resources and claims to those resources. This information would include not only the amount of resources and claims at a particular point in time but also changes in resources and claims that occur over periods of time. This information is key to predicting future cash flows.

SFAC 1 affirms that investors and creditors are the primary external users of financial information.